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Cashing In On Time And Turner

Inside Wall Street


How does an investor play Time Warner's (TWX) proposed takeover of Turner Broadcasting System (TBS/B) now that it seems hung up on maneuvering by insiders? Will there be a deal, or will John Malone, who heads Tele-Communications (TCOMA), which owns 21% of Turner, torpedo it? What about General Electric (GE), which owns the NBC Television Network? Will it go after Turner?

Rumors abound, and bets are everywhere. But several major stakeholders close to players in the talks are convinced that: (1) Turner will, indeed, be acquired by Time Warner--sooner rather than later, and (2) GE will sell NBC, valued at $6 billion to $8 billion, to the Time Warner-Turner enterprise for stock that could give GE a 15%-to-20% stake in the new media-broadcasting-entertainment giant.

"Buying NBC from GE for stock would provide Time Warner-Turner a capital-rich partner in GE, which could bolster the new combination's cash flow and also enable it to accelerate a much-needed deleveraging process," says Herb Ehlers, president of Liberty Investments Management, which owns 2.4 million shares of Time Warner, 5.6 million shares of TCI, 1.6 million shares of Liberty Media (LBTYA), the TCI affiliate that owns the 21% stake in Turner, and 700,000 shares of Turner. As a big stakeholder, Ehlers is close to the big players, including Malone. A spokesperson for NBC says it isn't for sale but is interested in strategic alliances.

"Apart from the valuable assets of NBC, GE brings to the table its deep pockets," says analyst David Shell, also of Liberty Investment, "which could be the source of badly needed cash for Time Warner in its quest to deleverage, particularly after acquiring Turner." A GE spokesman declined comment on rumors about buying Turner or Time Warner.

Shell notes that, except for Turner, the other "significant beneficiaries" in this evolving drama have yet to reflect the full value of the deal in their shares. Turner shot up from 24 a share to 30 1/2 on Aug. 30, when Time Warner announced its tentative pact to acquire the 82% of Turner that it doesn't already own for $8 billion (35 a share) in stock.

Since the announcement, Time Warner has slipped from 42 3/8 to 40. Ehlers says it's undervalued by at least 50%, based on the Turner acquisition and other potential deals ahead.

Other beneficiaries whose stocks haven't reacted and that Shell thinks are great buys: TCI, which has edged up only from 18 1/2 to 19, and Liberty Media, whose stock hasn't budged from 26.

GE, another potential winner, also hasn't reacted much--it's at 60. GE is way undervalued, says Shell, especially if you throw in the prospects and potential value of NBC.BY GENE G. MARCIAL

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